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Darwin Was Wrong

We Americans place a great deal of faith in the theory that open competition in free markets will ensure a sort of Darwinian efficiency; The most innovative, productive companies will grow and prosper, while weaker enterprises will wither and die.

We Americans place a great deal of faith in the theory that open competition in free markets will ensure a sort of Darwinian efficiency; The most innovative, productive companies will grow and prosper, while weaker enterprises will wither and die. For the most part, the truth of this economic model, even in its most brutal manifestations, can be observed in everything from the automobile industry to the illegal drug trade. In general, the fittest survive, and as the weak perish, the economy grows.

And then there are the regional Bells.

Despite the best efforts of Congress to open local phone service to competition with the Telecommunications Act of 1996, the Bells have managed to destroy all challengers at every turn by making access to their networks economically unfeasible. Now, these archaic bastions of monopoly are about to bring the growth of online consumer retail to a virtual halt by refusing to invest in the "last-mile" portions of their networks — the lines that run from switching centers to peoples homes and offices.

Its no mystery why this is happening. Improving their networks is enormously expensive and, with no viable competition, they have no incentive to invest. Better to grow fat on low-hanging fruit like urban business and financial centers — consumers and small businesses be damned.

Further reading

Any pressure the Bells might have felt from the Telecommunications Act all but disintegrated earlier this year when Rep. Billy Tauzin was named chairman of the House Energy and Commerce Committee, which controls telecommunications legislation. The Louisiana Republican, whose eight largest campaign contributors include BellSouth, SBC Communications and Verizon Communications in all, he has received $240,000 from Bells since 1995 has promised to dismantle the law and "unshackle" the Bells from "enforced competition." Whats more, he has stated an eagerness to strip the Federal Communications Commission of much of its regulatory authority over telephone companies.

Jeffrey Chester, executive director at the Center for Media Education, a public interest group, told Interactive Week in February, "This guy is going to determine what the Internet looks like for most people. The real threat here is that Tauzin, while giving lip service to the public interest, has only one group giving him cold, hard cash."

And that group, it is now clear, will not be facing any meaningful competition in the foreseeable future.

The Bells eagerly point to sizable investments in last-mile DSL as proof of their commitment to the consumer, but thats a straw man. The fact is, DSL is a lousy technology the Bells have cobbled together — half-heartedly — because it runs over old copper wires and thus requires a minimal investment in infrastructure. Unfortunately, it is by far the most unreliable of all telecommunications technologies. Besides, indicators now suggest that the Bells are slowing investment in DSL, even though its still not available in most parts of the country. It turns out that bad technology requires a whole lot of customer support, which happens to be almost as expensive in the long run as running last-mile fiber-optic cable is in the short term.

The one last hope for any real competition in the bandwidth business was AT&T, which spent billions to build a competing local voice and data system on the back of its television cable network. But that vision, articulated by the companys chairman, C. Michael Armstrong, proved too expensive even for the deep pockets of Ma Bell. Now AT&T shareholders are being asked to approve a breakup of the company that, given the current condition of the stock market, is likely to mean an indefinite delay in — if not the demise of — Armstrongs vision.

So myriad businesses await the opportunity to compete in markets ranging from financial services to streaming video entertainment to online applications. But its not to be. Many will simply abandon their dreams. Some will die a slow death before this monopoly blood clot can be cleared from our economy.